Bitcoin was released as an open source software in 2009 in a system under which peer-to-peer transactions take place between users directly. These transactions are verified by network nodes and are recorded in a public ledger known as a blockchain.
Bitcoins are validated and processed by a decentralized network of volunteers which rely on cutting-edge hardware to perform advanced calculations called “hashes”. These then solve complex mathematical algorithms for a reward of bitcoins and a marginal transaction fee.
Mining of cryptocurrencies requires powerful computers which in turn mean more electricity. If the bitcoin industry keeps expanding at its current rate, it will lead to a considerable uptick in global consumption of electricity which could spur the development of new energy-efficient technologies.
Bitcoin’s current annual electricity consumption is estimated at 17.4 terawatt hours (TWh). A single bitcoin transaction on average consumes around 193 (KWh) of electricity and an average of 6.4 U.S. Households could be powered for a single day with the electricity consumed by a single bitcoin transaction.
The largest mining pools are located in China, which also produces most of the world’s ASIC hardware that plays an important role in mining. According to Digi Economist, electricity consumption for mining bitcoins is measured to be a staggering 0.08% of the global supply which was approximately 22,000 (TWh) in 2016. In contrast, Ethereum’s electricity consumption stands at 0.02% of the world total.
Iceland’s electricity consumption at 17.62 TWh is nearly equal to the 17.54 TWh currently consumed in mining bitcoin.
In the long-run, as the electricity consumption of bitcoin continues to rise, a modernization in mining technology or a reduction in the energy intensity of mining algorithms would become essential for stabilizing and reducing electricity consumption.